Core views

2024Q2 Ctrip Group achieved revenue of 12.788 billion yuan, up 13.55% year on year, and achieved non-GAAP net profit of 4.985 billion yuan, up 45.17% year on year. Both revenue and net profit exceeded Bloomberg's agreed expectations. Cross-border travel is the main driver for the company to continue to maintain steady growth under the premise of a high base. In terms of outbound travel, Ctrip's outbound hotel and air ticket reservations returned to pre-pandemic levels this quarter, surpassing the industry average of 20%-30%. In terms of inbound travel, Ctrip's inbound tourism's share of revenue on international platforms has risen from 5% before the pandemic to more than 25% now. Since then, the recovery of domestic wine tourism has entered the second half. Driven by the restoration of international capacity and visa-free policies, cross-border business will continue to recover and be resilient in the industry. As a leading domestic OTA, Ctrip has many international business layouts, and the future prospects are broad.

occurrences

On August 27, 2024, Ctrip Group released its results report for the second quarter of 2024. 2024Q2 Ctrip Group achieved revenue of 12.788 billion yuan, up 13.55% year on year, and achieved non-GAAP net profit of 4.985 billion yuan, up 45.17% year on year. Both revenue and net profit exceeded Bloomberg's agreed expectations.

Brief review

Cross-border travel drives revenue growth. In the second quarter, the company achieved revenue of 12.788 billion yuan, up 13.55% year over year, slightly higher than Bloomberg's agreed expectations. Among them, accommodation reservation revenue was 5.1 billion yuan, up 20% year on year; transportation ticket revenue was 4.9 billion yuan, up 1% year on year; travel and vacation business revenue was 1 billion yuan, up 42% year on year; and business travel management revenue was 0.633 billion yuan, up 8% year on year. Cross-border travel is the main driver for the company to continue to maintain steady growth under the premise of a high base. In terms of outbound travel, international capacity recovered to 75% of pre-pandemic levels this quarter, and Ctrip's outbound hotel and air ticket reservations returned to pre-pandemic levels, surpassing the industry average of 20%-30%. In terms of inbound travel, Ctrip innovates products in the fields of payment, scenic spot tickets, accommodation, group tours, etc., to serve overseas tourists visiting China. The share of inbound tourism revenue on international platforms has risen from 5% before the pandemic to more than 25% now. Globally, the company's international platform revenue increased by about 70% year over year, including a 76% increase in revenue from mobile teams in the Asia-Pacific region. The company will continue to focus on mobile-first strategies. Currently, more than 65% of transactions are completed on international platforms via mobile devices, and user participation is as high as 75%.

Net interest rates hit record highs in recent years. Ctrip achieved gross profit of 10.46 billion yuan in the second quarter, up 13.20% year on year, and gross margin reached 81.90%. In terms of period expenses, the R&D expenditure rate for the quarter was 23.43%, compared to 26.26% in the same period last year, down 2.82 pct from the previous year. Ctrip will apply AI Agent for the first time in the industry to optimize products and services with AI technology. The sales expense ratio for this quarter was 22.20%, compared to 20.94% for the same period last year, up 1.26pct year-on-year. It is expected that the sales expense ratio will continue to rise in the second half of the year. The management expense ratio for the quarter was 8.43%, compared to 8.49% in the same period of the previous year, a year-on-year decrease of 0.06pct. On the SBC side, the company's equity incentive cost for the quarter was 0.674 billion yuan, accounting for 5.28% of revenue, compared to 4.42% in the same period last year. It is expected that SBC's share of revenue will fall back to normal levels in the second half of the year. On the profit side, benefiting from the optimization of R&D expenses and the increase in the share of SBCs, etc., the company achieved non-GAAP net profit of 4.985 billion yuan this quarter, corresponding to a net interest rate of 39.03%, which surpassed Bloomberg's unanimous expectations, all of which hit record highs in recent years.

Profit forecast and valuation: We expect Ctrip's 2024-2025 revenue to be $52.353 billion and $60.292 billion, up 17.64% and 15.17% year over year, and non-GAAP net profit of 16.097 billion yuan and 18.147 billion yuan, respectively, with corresponding net interest rates of 30.75% and 30.10%, respectively. Maintaining a “buy” rating, the target price is HK$516.06, corresponding to 20X PE in 2024.

Risk warning: Weak outlook in wine tourism; macroeconomic recovery falls short of expectations, affecting residents' spending power; transportation and ticketing business growth falls short of expectations; travel and vacation business growth falls short of expectations; business travel business growth falls short of expectations; international capacity returns to low expectations and outbound travel recovery falls short of expectations; impact of pan-ecological internet giants such as Meituan and Douyin on the competitive landscape; risk of impairment of goodwill; risk of impairment of goodwill; risk of weakening of the Chinese stock market; risk of US stock market withdrawal; risk of US inflation exceeding expectations, the Federal Reserve's interest rate cut process is low expectations; The renminbi depreciated beyond expectations; other overseas risk factors affecting the overall performance of China Internet.